Anti-business? The Labour Party’s real problem is that it’s anti-market

Ryan Bourne occupies the R Evan Scharf Chair in the Public Understanding of Economics at the Cato Institute in Washington DC.

Follow Ryan

Ryan Bourne

An overwhelming number of businesses worry that Labour does not understand the way markets operate (Source: Getty)

The war of words between Boots and the Labour Party has led to much political soul-searching. The salient question seems to be: “is Labour anti-business?”

This is not particularly interesting. “Business”, after all, is not some homogenous entity. Many claim to be the “voice of business,” but the loudest tend to be those representing the big entrenched players, rather than the challenger incumbents. Different companies will have different positions on particular issues, shaped by their own self-interest.

In general, “pro-business” policies are not even necessarily desirable. A policy which helps a particular business or industry (subsidies, restrictions on competition) may be bad for the overall economy. As both Adam Smith and Milton Friedman recognised, capitalists are often the worst representatives of free enterprise – businessmen have incentives to lobby for new regulations, government contracts and special carve-outs from legislation. What we really want then are not pro-business policies as such, but pro-market ones – in which governments provide a framework that enables free competition to operate for the benefit of consumers.

The mystery for the Labour Party is that, in many areas, is does have pro-business policies, but doesn’t appear to be getting any support for them. Its opposition to an In/Out referendum all but guarantees our remaining in the EU if the party is victorious, and yet very few of the substantial number of businesses who agree with the Labour position are coming out to back Ed Miliband.

Likewise, it’s also committed to a more hands-on “industrial strategy” than that of the current government, and has outlined more in the way of childcare support, green interventions and a new infrastructure commission. Its also promised to cancel a corporation tax cut to pay for a business rate cut for smaller firms. Whatever you think of them, these are all policies that you’d imagine would win backing from at least some businesses and business lobby groups.

Why, then, the lack of public support? While pro-business and pro-market policies are not one and the same, they often overlap. In particular, businessmen generally understand the importance of certainty, the role of prices, the rule of law and how extensive political interference in markets can be damaging. So it is difficult not to conclude that Labour has simply frightened the broad business community through a range of its more anti-market measures. In short, it’s the scale of what Labour envisages to be within the scope of government that has petrified many.

Listen to what business leaders are saying. Their concerns are often unrelated to issues within their own sector. Lord Haskins, the chairman of Northern Foods, is irked by Labour’s policy of freezing energy prices. Others lament its commitment to a mansion tax as a key plank of improving Britain’s dysfunctional property market. Then there’s the promise of rent controls, and public shaming of companies often in complex tax cases. The cumulative effect has been to shift perceptions such that an overwhelming number of businesses now worry that Labour does not believe in or understand the way markets operate.

In other words, much of the business community doubts Labour’s commitment to the broader market framework that has been implemented in the past 30 years. The party’s problem is more fundamental than simply failing to attract business support due to a few business specific policies. It’s that it is now perceived to be anti-market.